Muni Bonds Weather the Storm

Hurricanes Katrina and Rita have inflicted major damage to bridges and roads across the Southeast. But municipal bond fund managers say the bonds supporting those structures are not buckling. In fact, they may even be bargains.

"There are numerous cases of happy endings for munis after major catastrophes," says Robert Pariseau, portfolio manager for the (USTEX Quote)USAA Tax Exempt Long-Term bond fund. "Florida suffered through four major storms last year, including Hurricane Ivan, and there were no defaults and no downgrades. The state ended up being upgraded last winter by all the rating agencies."

A municipal, or muni, bond is a debt security issued by a local government to fund capital spending projects such as bridges or sports stadiums. Municipals, as opposed to taxable bonds such as Treasuries and corporates, are exempt from federal taxes and from most state and local taxes, especially if you live in the state where the bond is issued. That is the essence of their attraction. ...